Why London is the capital of fintech companies

Britain is one of the leading countries in the world for fintech companies – despite Brexit and the economic downturn. How did this come about?

Fintech stands for financial technology – ie companies, start-ups and banks that use specialized software to offer financial services. For example, anyone who pays at a supermarket checkout with their cell phone or watch is using fintech. And no other European country invests as much in this industry as the United Kingdom. Last year there were five billion dollars, more fintech investments than in the rest of Europe combined. In a global comparison, the United Kingdom ranks second, behind the US.

“Fintech is really the UK’s great strength,” said Janine Hirt, CEO of Innovate Finance, a London business group. Of course, also because London is one of the most important financial centers in the world. The big banks, investors and talents are in the city. Anyone looking for investors in London just needs to cross the street.

Tax relief and government investments

But that’s not the only reason, says Hirt. There are also two economic development programs that would have helped a lot with Fintech. They offer tax breaks to investors when they invest in new and growing businesses. Investments are particularly risky there because no one knows how they will perform. In a report, the British government came to the conclusion that this support helps, especially at the very beginning, so that beginners can get on their feet. Since last year there have also been “fintech funds” that want to invest in the growth of new businesses – between ten and 100 million pounds.

The second reason why fintech is succeeding in Britain, says Hirt, is to keep a special eye on the financial market. Wise, one of London’s success stories, also benefited from this. Tómas Adamski, 37 years old, is the company’s spokesperson. Six years ago he moved from Berlin to London to work for Wise.

Wise is a technology company that allows people and companies to send and receive money freely across borders, including through a smartphone app. The company moves 140 billion euros per year. It’s a fintech unicorn called Wise. These are companies whose pre-IPO value is estimated to be at least a billion dollars. Today Wise is listed on the stock exchange.

Brits are more digital

The financial regulator in Great Britain allowed the company to use a so-called sandbox environment. This means that companies can test their products in a real test environment, basically on a live thing, before going live. A model that has now been used in other European countries.

And Wise benefited from something else: the company relies on working with commercial banks in many regions of the world, which makes it more expensive for customers to use Wise. “The British governor was one of the first to say: We are building this. You no longer have to work with commercial banks, but you can have an account directly with our central bank.” This makes it faster and cheaper to transfer money across the globe. This model has now been adopted in several countries, including the EU.

What also encourages the fintechs, according to Adamski: The British are simply more digital. He jokes that he has only withdrawn money three times in the six years he has been working in the UK.

Lots of talent from abroad

Revolut is London’s best-known fintech name. The digital bank is considered the most valuable fintech startup in Europe, with 45 million customers worldwide – also a unicorn company. Spokesman Adam Gagen says so-called “open banking” has helped the company. For example, anyone interested in a new loan product can spend hours running information from their old bank through the copier – or click a box on their cell phone that allows the new bank get this information from the old bank. This is also possible in Germany. But the United Kingdom has been a pioneer for a long time, says Gagen.

But talent is also important to the success of the fintech scene: around 45 per cent of fintech workers in the UK come from abroad, says Janine Hirt, and that’s what makes the business so strong And Adam Gagen also says: “Innovation is happening all over the world. Anyone who can bring it to their own market and support the people there will benefit.”